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How low can the commercial sector go?

The latest instalment of our recession comparisons charts the plummet of the commercial sector in the 1990s and asksif it will be a case of history repeating itself this time around

How does this recession compare with the last one? Over the last few weeks we have been comparing the key stats for some of the sectors most dramatically hit by recessions in general, in the hope of gaining some insight into where we are now.

It falls to us this week to cover the commercial sector. Even mentioning the name is bound to leads to sighs, such is the state of this part of construction.

But there is one piece of good news – commercial will bounce back.

Construction Products Association economics director Noble Francis says: “When the commercial sector comes out of recession it does tend to come back with double digit growth.”

The bad news, perhaps, is that that strong growth will not come until 2013, with the recovery starting in 2012.

So what does the early 90s recession tell us?

While other sectors such as housing tend to decline prior to an economic recession the commercial sector, chiefly offices and retail, is slower to react but much quicker to fall.

Private housing fell into double digit decline two years before commercial saw any negative growth in the first quarter of 1991 – two quarters after the recession began.

Commercial construction only exited recession two quarters after the entire industry recovered in the last quarter of 1994 - nearly three years after the economy recovered.

So far, this time around has been no different. Commercial showed modest but positive increases of 3.4 and 2.1 per cent in the second and third quarters of 2008 compared to the same periods the previous year.

Again, this was preceded by several quarters of double-digit increases.

But this time its fall has been, as you might predict from previous articles on the recession, worse – from positive growth to double-digit decline in the last quarter of 2008.

The first quarter of 2009 saw -25.8 per cent shift and the order books don’t look great either, according to Mr Francis.

He says: “Order books in 2006 and 2007 were good so output in the first half of 2008 was still reasonably high. But sharp falls in new orders are going to filter through this year and next year.”

The CPA predicts output of £9.7bn for 2011 - a fall of £7bn from the sector’s record high of £16.7bn in 2008.

To put that into context, the difference between the peak and trough either side of the 1990s recession was £5.7bn.

Those working in commercial will be holding on tight for the recovery.